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We already have a UBI: New Zealand Super

Many countries around the world are looking at piloting an Unconditional Basic Income (UBI), and some are suggesting that New Zealand should follow suit. Actually we have been running a UBI pilot for many decades. It isn’t quite unconditional – you have to be over 65 to get it. That’s right, I’m talking about New Zealand Super. It has existed in its current form since 1977 when Muldoon lowered the age and made it more generous, but we’ve actually had a universal pension in some form since 1938.

What can we learn from one of the world’s longest running UBI experiments? The results are startling; on many measures it has been incredibly successful. Yet on Q&A over the weekend the Retirement Commissioner reiterated that with the ageing population NZ Super is unaffordable in its current form. According to the Retirement Commissioner the ageing members of society have not got their heads around this, with a survey showing they feel the government owes them a pension. However, the younger generation sees the writing on the wall, realising they will have to pay for their own retirement.

The question is how do we keep the good aspects of our existing Unconditional Basic Income while ensuring it is still affordable with an ageing population? Let’s start by looking at the results of our own UBI experiment.

Stigma

Generally NZ Super recipients escape the stigma associated with being a beneficiary. This is surprising given that NZ Super is the largest cost in the welfare bill (at around 47% of the total), and is set to keep receiving the biggest cash rises for the foreseeable future. A Community Law Canterbury report on beneficiary stigma found:

The term “beneficiary” is sometimes used in a belittling way, reflecting the stigma those on benefits can face (and as one participant pointed out, it is generally not used to describe superannuitants)

It is most likely that this lack of stigma is due to the universal status of the benefit – everyone over 65 receives the same amount. How curious is that? A benefit received by all over the age of entitlement is not regarded as a benefit at all, but rather an “entitlement”. It will be interesting to see whether the current and future taxpayers funding National Superannuation feel that way.

Poverty

We have one of the lowest rates of elder poverty in the developed world. Could this be because of the generous Unconditional Basic Income they receive? It helps that New Zealand Superannuation payable to a married couple must be at least 65% of the average wage. Of course not everyone in need does that well out of our tax and welfare system; we have one of the highest rates of child poverty in the developed world.

Therein lies the tradeoff of such a high rate of New Zealand Superannuation. By funding a universal benefit at such a high rate we are using precious taxpayer funds that could be used to alleviate serious poverty amongst our younger citizens. Why don’t we? Probably because the elderly have the highest turnout on polling day, while children don’t get any vote at all.

Impact on work

If you give everyone an Unconditional Basic Income, won’t people stop working? Well, no. Despite their age and the obscenely generous nature of NZ Super, many pensioners keep working. In fact one in five pensioners work, and for those under 70 it is closer to two in five; one of the highest rates of any country in the OECD. That is a long way from an employment apocalypse.

Yet some reckon that a UBI of much less magnitude than the New Zealand Superannuation would discourage younger people from paid work in droves. They have no evidence of course – it’s sheer prejudice. The fact is that people have many reasons to pursue work and success – in a recent survey of pensioners the most popular reason for working was that they ‘liked being busy’.

Money may not always be the top motivation for work, but it helps that pensioners don’t lose their Super if they keep working. That is the essence of an Unconditional Basic Income.

Volunteering and Unpaid Work

We get a pretty good return on investment from this Unconditional Basic Income. Despite their age and the fact they are not getting paid, our superannuitants seem to keep themselves busy for the benefit of the country. The age group most likely to volunteer in any given 4 week period are those aged 65-74, at almost 40%. This drops off a little at older ages, for obvious reasons.

Pensioners also spend more time doing unpaid work than any other group – 4 hours and 31 minutes every day. Clearly their UBI has no effect on their work ethic.

Remember the enormous value is generated by unpaid work. Roughly half of all work done in our economy is unpaid, an Unconditional Basic Income would honour that contribution.

How do we keep it affordable?

To conclude, New Zealand has actually been experimenting with a UBI for the past forty years, and it has been a raging success in terms of not denting the propensity to work – either voluntarily or paid. The problem is that because of its generous level it is expensive and diverts money from truly needy citizens. For this reason there is a growing realization that people can’t expect to rely on NZ Super continuing in its current form. A survey by the Retirement Commissioner indicated that 83% of people feel that people should contribute to their own retirement, while 70% felt the government should also contribute (people had two votes).

There are many people over 65 receiving additional income well above the level of NZ Super – either from working or investment income. As the NZ Herald points out, we may have better ways to spend taxpayer funds than giving New Zealand Superannuation to people that don’t need it. Yet there are clearly also benefits from a universal system.

The Retirement Commissioner has suggested increasing the retirement age to 67, but there are some people that cannot keep working past 65. One middle ground could be to keep a universal portion of the pension (at around half the current level) and allow for targeted top ups to those that don’t have other forms of income. That way New Zealand Superannuation could continue to be equally successful at half the amount paid.

We already have a UBI: New Zealand Super was last modified: August 15th, 2016 by Gareth Morgan

We already have a UBI: New Zealand Super was last modified: August 15th, 2016 by Gareth Morgan

About the Author

Gareth Morgan

Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.